Applying for car finance is a popular choice for many of us, as purchasing a vehicle outright can be expensive. However, there may be expenses that you haven’t considered that can have an impact on how much you spend each month. So, whether you’re applying for a personal loan, Hire Purchase, a PCP agreement, or car finance bad credit, take a moment to think about some of the other non-negotiable expenses and hidden costs that come with car finance. Below, we’ll look at some examples.
Interest rates
One of the main costs to consider when it comes to car financing is the interest rate you will be charged. When you apply for car finance, you must remember that the interest rate you are offered will increase the overall price of your monthly payments. There are a few factors that may affect this, for example, if you have a bad credit score due to struggling to pay off your debt in the past, lenders may see you as more of a risk, and therefore increase the rates they charge you to mitigate the risk of failing to pay. Another factor that can play a part is the loan term you choose. A longer term may result in higher interest rates to offset the risk that comes with extended repayment periods.
To benefit from the best interest rates, improve your credit score before you apply for car finance, as this will put you in a better position when it comes to getting a better deal. You should also be sure to compare and review lenders to find the best agreement for your circumstances.
Loan Terms
You should consider the loan term you’re being offered by your lender, as this can have an impact on the overall cost of car financing. Whilst a longer agreement may seem beneficial as it gives you more time to pay and means more affordable monthly repayments, you could end up paying more interest over time, which can increase the overall amount of the loan. If you can, choose a shorter loan to reduce the total cost of borrowing.
Down payments
It’s not just the monthly payments you’ll have to consider when applying for car finance, you’ll have to consider whether your lender requires you to put down a deposit towards your vehicle. The amount of money you may need to pay upfront will differ depending on your lender, your credit score, and whether you have another car to use as equity. If your lender does not require a deposit from you, it might be worth noting that saving for a down payment can actually reduce the amount of money you spend on monthly payments. Saving what you can for a deposit could mean more affordable car finance in the future.
Insurance costs
Another cost of car finance to consider is insurance. You’ll need to sort out insurance for your new vehicle as soon as possible so you can fully protect your new asset. To find the best insurance offer for you, be sure to compare lenders online so you can get the best deal. It’s important that you do this to ensure you can afford this additional cost. You can choose to pay your insurance in a lump sum or pay it off monthly, however this usually costs more overall. Make sure you factor this expense into your budget along with your monthly finance payments to ensure you can afford the overall cost.
Maintenance and repairs
When you pay for a car on finance, you may be responsible for the care and maintenance of the car. This includes services, MOT checks, and any additional repairs you may need over the course of your time with the vehicle. These maintenance and repair charges can mount up, so consider whether you’ll be able to keep up with these additional costs. And of course, consider petrol. You’ll need to top up fuel in your car regularly too to get you from A to B, which is another additional expense.
Whilst choosing car finance allows you to pay for your car in more affordable amounts, thinking about additional costs, like petrol, maintenance, and insurance is essential to ensure you’re not taking on too much, that could end up with you falling into financial difficulty.
